HOUSING & BUSINESS DEVELOPMENT CAPACITY ASSESSMENT SUMMARY REPORT May 2019 TABLE OF CONTENTS 1. Introduction _______________________3 2. Housing demand and development capacity _______________4 Assessing demand for housing _________4 Housing supply and future housing demand ____________________________7 Household growth projections _________9 Price efficiency indicators_____________12 Housing affordability and affordable housing __________________15 Assessing capacity for housing ________17 Feasible development capacity ________18 3. Business and Industrial Development Capacity _____________19 Industrial Land and Development ______19 Business Zone Land and Development __22 Inner business zone (IBZ) _____________24 Outer business zone (OBZ) ____________24 Fringe business zone (FBZ)____________25 Local business zone (LBZ) ____________25 4. Recommendations _________________26 Housing ___________________________26 Industrial zone land (summary) ________27 Business zone land (summary) ________27 City Development Strategy and Housing and Future Develpoment Plan _________27 2 1. INTRODUCTION 1.1. This document is a summary of the May 2019 report prepared to meet the Council’s requirements under the National Policy Statement on Urban Development Capacity 2016 (NPS). The NPS requires that local authorities with urban area resident populations of over 30,000 people shall, on at least a three-yearly basis, carry out a housing and business development capacity assessment that: a. Estimates the demand for dwellings, including the demand for different types of dwellings, locations and price points, and the supply of development capacity to meet that demand, in the short, medium and long-term; and b. Estimates the demand for the different types and locations of business land and floor area for businesses, and the supply of development capacity to meet that demand, in the short, medium and long-term; and c. Assesses interactions between housing and business activities, and their impacts on each other. 1.2. Palmerston North was classified as a medium-growth urban area by the NPS because its resident population is projected to grow by 9.5% between 2013 to 2023 according to the December 2016 Statistics New Zealand medium urban area population projections. 1.3. The NPS states that local authorities shall ensure that at any one time there is sufficient housing and business land development capacity. Sufficiency is based on the following requirements: Development capacity must be feasible, zoned and serviced with development Short-term infrastructure. Development capacity must be feasible, zoned and either: • serviced with development infrastructure, or Medium-term • the funding for the development infrastructure required to service that development capacity must be identified in a Long-term Plan required under the Local Government Act 2002. Development capacity must be feasible, identified in relevant plans and strategies, and the development infrastructure required to service it must Long-term be identified in the relevant Infrastructure Strategy required under the Local Government Act 2002. 1.4. The NPS also requires local authorities to factor in the proportion of feasible development capacity that may not be developed, in addition to the requirement to ensure sufficient, feasible development capacity as outlined in NPS policy PA1, local authorities shall also provide an additional margin of feasible development capacity over and above projected demand of at least: • 20% in the short and medium term, and • 15% in the long term. 3 2. HOUSING DEMAND AND DEVELOPMENT CAPACITY Assessing demand for housing 2.1. Projections for future growth in the number of households draw heavily on past development patterns and population trends, as well as anticipated changes in those trends. Historic Statistics New Zealand urban area population data shows Palmerston North’s population grew rapidly from its founding in 1866, growing faster than the national rate of growth until the early 1980s. Since then its population has continued to grow, but more slowly than the rate of growth for New Zealand (see Figure 1). Figure 1: Palmerston North’s urban area population 2.5% 125,000 2.0% 100,000 1.5% 75,000 1.0% 50,000 Population Count Population 0.5% 25,000 0.0% 1874 1878 1881 1886 1891 1896 1901 1906 1911 1926 1936 1945 1951 1956 1961 1966 1971 1976 1981 1986 1991 2001 2013 2018 2023 2028 2033 2038 2043 0 % share of New Zealand’s population Zealand’s of New % share % share of New Zealand population Estimated and projected population Source: Statistics New Zealand 2.2. The latest population projections suggest the city will continue to grow more slowly than the rate of growth for New Zealand but that the rate of growth will be higher than the city has experienced since the early 1990s. Recent changes in population and economic growth across the wider Manawatū- Whanganui region, however, mean there is potential that growth in the city will be stronger than the medium population and household projections. 2.3. A significant factor contributing to the slowing in population growth and housing demand in Palmerston North was weak economic growth and population decline in the Manawatū-Whanganui region, which contributed to a widening in the gap between house values in Palmerston North and local authorities close to Palmerston North. March 2000 quarter data for average house values shows that house prices in the region around Palmerston North were between $20,000 and $80,000 below the average for Palmerston North. The gap has been relatively stable between Palmerston North and Manawatū District but has widened with other councils since 2000, increasing to more than $160,000 in some districts. 2.4. The increasing difference in house values has resulted in significant growth in the city’s labour market catchment, with 2013 Census data showing around 20% of the city’s workforce coming from other local authorities. Manawatū District (11.9% share) and Horowhenua District (3.2% share) are the largest contributors to the city’s workforce (see Table 1). 4 Table 1: Usual residence of people who work in Palmerston North (Census 2013) % share of city Place of Residence Number workforce Palmerston North City 31,425 79.1% Manawatū District 4,719 11.9% Horowhenua District 1,260 3.2% Tararua District 507 1.3% Rangitīkei District 492 1.2% Wanganui District 315 0.8% Kapiti Coast District 147 0.4% Wellington City 84 0.2% Total selected territorial authorities 7,524 18.9% Other territorial authorities 771 1.9% Total Palmerston North workforce 39,720 100.0% Source: Statistics New Zealand 2.5. Since September 2018, economic growth (gross domestic product (GDP)) in the Manawatū- Whanganui region has been stronger than the overall rate of economic growth for New Zealand. This is a key contributor to the strong population growth which has been occurring in the region. GDP estimates produced by Infometrics suggest economic growth in the city accelerated during 2018 and also now stronger than the overall growth rate for New Zealand. This rapid change in economic performance and population growth in Palmerston North has created challenges for the Council in assessing short-term and medium-term demand for housing in the city. To assist with this, Sense Partners was commissioned by the Council in August 2017 to produce alternative population and household projections for the council’s 2018-28 Long-term Plan. Table 2: Long-term medium population projections for Palmerston North Sense Partners Statistics New Zealand (September 2017) (December 2016) Average annual change Average annual change Population number of rate of Population number of rate of Period ended count people change (%) count people change (%) 2001 77,100 77,100 2006 80,800 740 0.9% 80,800 740 0.9% 2013 83,500 386 0.5% 83,500 386 0.5% 2018p 88,730 1,046 1.2% 88,200 940 1.1% 2023p 93,650 984 1.1% 91,400 640 0.7% 2028p 98,118 894 0.9% 94,200 560 0.6% 2033p 102,444 865 0.9% 96,700 500 0.5% 2038p 106,823 876 0.8% 98,800 420 0.4% 2043p 111,840 1,003 0.9% 100,700 380 0.4% Source: Statistics New Zealand 5 2.6. These alternative growth projections were sought because of concerns that the Statistics New Zealand migration projections were not consistent with current growth trends in the city. The median population growth projections produced for the Council by Sense Partners were close to the high growth scenario projections produced by Statistics New Zealand, and represent a significant increase in growth from what has been experienced in recent years. Table 3: Alternative long-term medium population projections for Palmerston North Sense Partners Statistics New Zealand (September 2017) (December 2016) Projection scenario Projection scenario Period Medium High Medium High Low (5%) Low (5%) ended (50%) (95%) (50%) (95%) 2001 77,100 77,100 77,100 77,100 77,100 77,100 2006 80,800 80,800 80,800 80,800 80,800 80,800 2013 83,500 83,500 83,500 83,500 83,500 83,500 2018p 85,461 88,730 91,359 86,300 88,200 90,000 2023p 86,594 93,650 101,393 87,500 91,400 95,300 2028p 87,161 98,118 113,440 88,000 94,200 100,300 2033p 87,168 102,444 127,720 88,100 96,700 105,200 2038p 86,809 106,823 143,736 87,800 98,800 109,900 2043p 86,017 111,840 162,537 87,000 100,700 114,500 Source: Statistics New Zealand 2.7. Both Statistics New Zealand and Sense Partners produced alternative growth projections, reflecting the uncertainty with growth projections. The Sense Partners projections suggest increased uncertainty about the rate of future growth in Palmerston North. Its low population projection suggests the city’s population will reach 86,017 by 2043 while its high projection suggests a 2043 population of 162,537. 2.8. However, the Sense Partners projections do not take account of the significant increase in central government investment that is occurring in Palmerston North and the surrounding region, which is expected to continue for at least the next 15 years.